Trillion-Dollar Economy: How Can Uttar Pradesh Enhance Economic Growth?

By Nirupam Bajpai

For Uttar Pradesh to attain the goal of a $1 trillion economy, it is imperative that the political and bureaucratic leadership of the state think out of the box to identify novel avenues of growth.

There are five avenues—green industries, special economic zones, industry 4.0, tourism and urbanisation—that go well beyond the traditional sources of growth and hence should be able to contribute to enhancing the growth rate of the UP economy over the next five-seven years.

Additionally, these new-found avenues cannot just rely on UP and/or India as a market. Instead, UP will need to look beyond—to overseas markets—as well. Of course, being a landlocked state, becoming a major platform for exports will pose its own challenges but those could, by and large, be overcome by becoming a low-cost and an efficient manufacturing base of the country.

Green Industries

Green industries and green jobs are the future and the sooner an economy adopts them, the better it is for sustainable growth and development over the medium to long run.

From that point of view, examples of electric vehicles (EV) and solar panels stand out. UP should aggressively attempt to become India’s number one hub in these two areas.

A major effort should be launched under Chief Minister Yogi Adityanath’s leadership to attract not only India’s but also the world’s largest EV companies, including Tata Motors, Mahindra and Mahindra, Ashok Leyland, Tesla, Toyota, BYD, General Motors, Volkswagen, SAIC-GM-Wuling Motors, BMW, Nissan, Hyundai and Ford.

Similarly, for solar panels, too, UP should aim to become a major platform for its production. In India, Adani Solar, Vikram Solar, Waaree Energies, Tata Power Solar, etc. can be approached. From outside India, SunPower, Zenernet Solar, Sunrun, etc. can potentially be tapped.

UP needs to make a compelling case to these companies that not only will it provide the largest market in the state and the country, it can also be a major export platform for sales to other countries in South Asia, sub-Saharan Africa, the Middle East and Latin America. Besides, the state will offer a very attractive investment package, single-window clearance, quick availability of land, labour and all the other key requirements for manufacturing plants to be set-up in record time.

SEZ Strategy

In the manufacturing space, UP needs to rethink its special economic zone (SEZ) strategy. I believe that SEZs are critical if UP has to sustain high rates of economic growth in the years and decades ahead.

SEZs can play a major role in making UP a platform for manufacturing exports, especially in labour-intensive manufacturing, which will help the state create tens of millions of jobs, attract large-scale foreign direct investment (FDI) and boost its export earnings.

The state should be looking at developing three-four large SEZs rather than giving approvals for a very large number of very small-scale SEZs. Half of India’s SEZ projects that have been approved cover less than 1 sq km area as against 150 sq km SEZs in China.

SEZs in UP should provide for liberal labour laws and exit policies or else they are unlikely to succeed as the Chinese SEZs have. Since labour laws fall under the concurrent list of the constitution, both the federal and state governments can legislate. However, the federal government has not been able to mobilise enough political will to reform laws such as the Industrial Disputes Act, thereby leaving such decisions to the state governments and only a handful of state governments have attempted to make modest changes to the country’s stringent labour laws.

An exit policy needs to be formulated such that firms can enter and exit freely from the market. While the policy should recognise the need and potential merit of certain safeguards, if wrongly designed and/or poorly enforced, it would turn into a barrier that may adversely affect the health of the firms.

For the SEZs in UP to succeed, all key aspects of the export environment need to be secured. Exporters, for example, should be allowed to import intermediate products and capital goods duty free. They should be given generous tax holidays. The exporters should be assured decent physical infrastructure, often through the provision of land, power, physical security, transport to the ports, etc.

In the SEZs, UP should invite foreign direct investors to provide the capital and the expertise to achieve export competitiveness in a wide range of sectors, including electronics, apparel, plastic toys, stuffed animals, ceramics and many other labour-intensive sectors. In each sector, the key will be to link foreign investor capital and expertise with a large and low-cost UP labour force. The foreign investors should bring in the product design, specialised machine tools and capital goods, key intermediate products and knowledge of world marketing channels.

A striking example is that global players in the field of semiconductors are betting on India becoming a chip manufacturing hub. UP should go all out to attract chip manufacturing firms to locate their plants in the state. Perhaps an SEZ could be dedicated for chip manufacturing if sizable exports could be ensured. If not an SEZ, an electronic zone could be earmarked for such firms. Homegrown technologies and manufacturing capabilities should be fully harnessed and in partnership with, say, IIT-Kanpur, the state should offer firms the best of terms to attract them.

India’s domestic semiconductor market will be a huge draw for foreign manufacturers but UP will have to compete hard with states such as Karnataka, Maharashtra and Tamil Nadu.

Finally, while I reiterate my strong belief in the SEZ as an enclave that helps attract investment, creates jobs and promotes exports, I do feel that unless some of the concerns listed above are addressed, the results are unlikely to be very encouraging.

4IR Economy

The Fourth Industrial Revolution (4IR), which covers the emergence of technologies—ranging from machine learning, artificial intelligence, autonomous transportation and cloud computing—has yielded a sea change in economic history by permanently altering the relationship between man and machine.

In the 4IR economy, which some commentators have referred to as Industry 4.0 or the Second Machine Age, human-designed digital processes will gain the ability to learn and perfect themselves through constant iterative interaction with data coming from, and shared with, more sources than ever before.

In doing so, through the sheer weight of data provided to them, machines will gain an ability to interact with fluid and unpredictable situations that have long been reserved for human operators, designers and managers. This could leave humans responsible only for tasks related to creativity, management and human interaction, with robots being responsible for the rest.

It may be a worthwhile proposition for the UP government to engage with faculty members of IIT-Kanpur (IIT-K) and IIM-Lucknow (IIM-L) to explore, for instance, what it will take for UP to become a major hub in India for big data storage and analysis.

The presence of IIT-K and IIM-L in the state should be seen as a vast reservoir of skill and talent that the state government should tap for any and every initiative where their expertise could be gainfully utilised. In fact, I would suggest the UP government to start an internship programme which would allow the bright students of these two fine institutions to work in, and share their ideas with, as many government departments as possible. One example could be to engage them in the One District One Product initiative.

Young and bright minds from outside the governmental system could be instrumental in thinking about out-of-the-box solutions.

Tourism

Large parts of UP offer great destinations for rural and religious tourism. Rich in arts, crafts and culture, selected parts of rural UP, combined with major religious centers, should be developed for attracting domestic as well as foreign tourists.

If a concerted effort is put towards this idea, in terms of developing the right connectivity for ease of travel, decent hotels, cleanliness in and around the religious centers, and, most of all, proper marketing, this can become a major source of growth in the years to come.

Urbanisation

A landlocked state, UP is mainly rural with an urbanisation rate of merely 23 per cent and with an economy that is primarily agrarian. Going forward, however, UP will face enormous challenges in the areas of rural development, urban sustainability, state infrastructure, and human capital and population. UP will add tens of millions of people to its urban economy in the years and decades ahead.

The state urgently needs to develop more cities. By now, there is ample empirical evidence from around the world that higher urbanisation leads to higher economic growth. In India, too, numerous studies have found that urbanisation is a key factor, explaining high growth in states such as Tamil Nadu, Maharashtra, Karnataka, etc.

UP’s cities need to be smart, safe, efficient, pleasant to live in, supported by infrastructure (water, sewerage, electricity, transport, etc.) and be able to create jobs which are globally competitive. Briefly put, the state needs a revolution in sustainable urban planning.

Other than these five broad avenues, in order to reach the goal of a trillion-dollar economy, the state can look at the importance of substantially raising agricultural productivity, including bringing about a green revolution essentially focused on central and eastern UP; vigorously promoting agro-based industry; laying the groundwork to develop UP as a major platform of manufacturing; developing the state as a major center for IT and ITeS companies and broadly the service sector; major and continued push to developing infrastructure—both hard (roads, airports and expressways) and soft (primary health and education)—and widespread use of information communication technology, including smartphones and platforms for leapfrogging the developmental processes.

For UP to attain and sustain high rates of economic growth, an action-packed agenda will be required on all these fronts with regular monitoring and evaluation to undertake mid-course corrections as may be necessary.

(The author, a Padma Shri awardee, is Senior Advisor, Sustainable Development and Director of the South Asia Program in the Center for Sustainable Development at Columbia University, New York)